SPY is industry shorthand for the SPDR S&P 500 — until very recently the world’s largest ETF by market capitalisation.
Though don’t let that mislead you; it’s still number two in the grand scheme of things, holding some $92bn in assets under management. So not just an insignificant also-ran.
This makes the following very much worth noting. It’s a chart of the very sudden and extreme pick up in settlement fails related to the SPY stock, compiled using SEC data, courtesy of John Welborn, of the Haverford Group:
As Welborn told us:
There has been a substantial increase in SPY FTDs lately (SPY is the ticker for the S&P 500 ETF). At the moment, we have data through the end of August 2011. Here is what it looks like year-on-year:
1) To date in 2011: a. SPY fails are 81% of 2010 SPY fails. b. $ value of SPY fails are 91% of 2010 fail value.
2) For the last three months of 2011 (June through August): a. SPY fails are 112% of 2010 SPY fails. b. $ value of SPY fails are 126% of 2010 SPY fail value.
3) For August of 2011 only: a. SPY fails are 254% of Aug 2010 SPY fails b. $ value of SPY fails are 276% of 2010 SPY fail value.
On top of that:
- August 2011 has 3 of the top 10 days ever by both fails and fail value.
- August 15th 2011 has the highest fail value ever for SPY at $5,855,898,341 (and only the second highest absolute fails at 49,563,253).
- The SPY fail value on 15 August 2011 is higher than total daily fail value in all other stocks, so far in 2011.
Of course, as FT Alphaville has noted countless times before, ETFs have always had a settlement fail issue. Statistically they are amongst the most likely equities to fail to settle on time, with many securities notching up as much as 190 days (or more) of consecutive fails.
We were once told that this could be down to some sort of trade financing trick. Indeed, UBS’s alleges index futures positions were offset in its systems with fictitious, forward-settling, cash ETF positions (What exactly is a forward settled cash position?Ed). So one might wonder if settlement abuse is possibly a wide spread problem in the industry.
Indeed, could it be that ETFs have a structural weakness that makes them easily used as a dumping ground for unsettled transactions in the industry? So, a little bit like the latest incarnation of Nick Leeson’s famous 88888 account. A good place to park stuff.
One thing is for sure. There were plenty of unreconciled ETF inventory issues created by Jerome Kerviel, too.
For now, we’ll keep wondering.
Related links:
What’s the ETF settlement fail issue? – FT Alphaville
To (settlement) fail, or not to fail – FT Alphaville
Why $200bn in US trades are failing each day – FT Alphaville